Online from: 1975
Subject Area: Accounting and Finance
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|Title:||Using Canonical Correlation to Identify Arbitrage Pricing Theory Factors|
|Author(s):||Carl B. McGowan, Jr., (University of Michigan - Hint), William Dobson, (Bentley College)|
|Citation:||Carl B. McGowan, Jr., William Dobson, (1993) "Using Canonical Correlation to Identify Arbitrage Pricing Theory Factors", Managerial Finance, Vol. 19 Iss: 3/4, pp.86 - 92|
|Article type:||General review|
|DOI:||10.1108/eb013719 (Permanent URL)|
|Publisher:||MCB UP Ltd|
|Abstract:||This paper presents a new research design to test the efficacy of the Arbitrage Pricing Theory of Ross , similar to that applied by Christofi, Christofi and Philippatos . In particular, we use a combination of factor analysis and canonical correlation to test the underlying relationships between APT factors developed using factor analysis and unanticipated changes in five macro-economic variables that have been shown to be related to stock returns. The results of this paper indicate that the first factor of industry returns is strongly related to the S&P 500 while the remaining four factors are highly correlated with the term structure of interest rates, the rate of inflation, the default premium, and the industrial production, respectively.|
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